Monday, March 07, 2011
8:19:25 PM EDT

Another Crucial Test

by
James Brown

The market's attention remains hostage to the price of oil and crude is fluctuating with each headline out of Libya, the Mideast and especially Saudi Arabia. The civil war in Libya could end up cutting oil production from that country for several months. Meanwhile analysts are starting to worry about what happens if the upcoming elections in Nigeria turn violent. Nigeria is a crucial producer of light, sweet crude oil. Of course the big event this week, outside of open warfare in Libya, is the upcoming "day of rage" protests on Friday in Saudi. Oil will likely remain elevated (or at least volatile) until this event passes.

Thus far the market's trend is still up with the S&P 500 bouncing off its intraday low but this is a crucial test (again) for the index. If the S&P 500 breaks the up trend the sell-off could be brutally fast and sharp. The best scenario might be a sideways consolidation until after Friday passes. We should expect stocks to see a lot of volatility up and down. With so much indecision in the market sometimes the best trade is no trade at all. I am not adding any new candidates tonight. If you feel compelled to buy something I might consider some puts on the major market indices as a hedge against your bullish trades.

Be careful and double check your stop losses and position size. Make sure you are comfortable with the level of risk you are taking.